Reefer sadness for pot farmers
http://today.msnbc.msn.com/id/39914211/ns/business-bloomberg_businessweek/
Marijuana growers in California find legalization could be worst
thing that ever happened
By Sheelah Kolhatkar
10/31/10
To reach Jason's farm you drive south out of the small town of
Arcata, in Humboldt County, Calif., and plunge into the forest that
gave the region its "Emerald Triangle" nickname. After passing
through hilly ranch country and a stretch on a dusty dirt road, a
wooden house peeks out of the fruit trees on 150 acres of land,
completely off the electrical grid. Jason is in the kitchen, stuffing
cannabis leaves into a juicer.
"Everyone around here is involved in some way," says Jason, a
professional marijuana grower. What he means is that a large
percentage of people in town, and every other town for miles, is
either directly or indirectly subsidized by dope, from the young
parents cultivating a few seedlings in the backyard to the owner of
the sushi restaurant where seemingly unemployed people eat dinner,
always paying in cash.
"I think we're in the middle of a boom time," says Jason, clomping
over to a leather sofa with his juice. He's in his late 30s and
wearing camouflage pants with a small knife clipped to his belt,
heavy-duty work boots, and just enough chin scruff to keep him from
looking groomed. Despite its rustic accommodations personal
business is conducted in an outhouse down the path the house bears
many signifiers of high household cash flow: gleaming new appliances,
lots of products made by Steve Jobs, a Droid satellite phone. He got
into the pot business almost by accident. After several years
drifting hippie-style through California, Jason fell in love with the
pastoral lifestyle and realized that he had to earn money to sustain
it, so he became a businessman. He agreed to explain the economics of
his trade, provided Bloomberg Businessweek withheld his full name.
The 1996 passage of Proposition 215, which legalized the possession
and cultivation of marijuana for medical use in California, ushered
in a green golden age. The legislation permits use of the drug by
anyone with a 215 prescription, which can be dispensed by doctors for
ailments ranging from cancer to a stiff neck; the Marijuana Policy
Project estimates there are 355,000 patients in California who have
been advised to use medical marijuana by a doctor. Selling marijuana
for a profit is still illegal under state law, and there is no
specific definition of how much a person can legally grow or what
constitutes a profit, while all marijuana sales remain prohibited by
federal law. The very vagueness of the rules created opportunity:
Midlevel entrepreneurs such as Jason who were willing to live with
the risks and ambiguities of a semi-legitimate market rushed in and
thrived, though there are no reliable estimates of how many there are.
Now a new set of variables has thrown the business into even greater
uncertainty. On Nov. 2, California will vote on Proposition 19, the
"Regulate, Control and Tax Cannabis Act of 2010," a ballot initiative
introduced by an Oakland pot enthusiast named Richard Lee that
proposes to legalize marijuana for personal use. The new law would
permit individuals to possess up to 1 ounce and cultivate 25 square
feet worth of plants at private homes, with no medical requirement.
Beyond that the initiative's language is murky. Regulation of
commercial production and sale of cannabis would be done by counties
and municipalities, leaving the mechanics of how it would all work undefined.
One thing seems clear, though, if the measure is adopted: A
quasi-black market will be replaced by a much more legal one, and
prices for pot are likely to go down. It's impossible to know by how
much, but a 2010 Rand study called "Altered State? Assessing How
Marijuana Legalization in California Could Influence Marijuana
Consumption and Public Budgets" estimates that retail prices could
eventually drop by 80 percent. First, suggests Jonathan Caulkins, a
public policy professor at Carnegie Mellon University and a co-author
of the Rand study, there would be a "honeymoon" period of several
years when production would ramp up as California product began to
push out inferior Mexican pot across the country. Once that happens,
you could have "a real change in industry structure," according to
Caulkins. Growers would have to professionalize their operations and
become even more industrial-scale to squeeze out smaller margins of
profit. In such an environment, people probably won't make the
$150,000 or so Jason says he clears every year, and "mom and pop"
farmers will be wiped out. Jason is planning ahead. "You wanna go up
top and walk through them fields of glory?" he asks. "If you can grow
twice as much, you'll make the same amount of money, even if the
price is half."
Above ground-underground market
For decades, the Emerald Triangle was sustained by logging and
fishing, but both eventually died off. In the 1960s and '70s, hippies
and counterculture types fled San Francisco and other cities to get
"back to the land," and were drawn to the area for its potential as
an agricultural utopia. The ideal was to be dependent on no one:
Build your own house, grow your own food, and slap solar panels on
the roof. It turned out that big redwood country was almost as well
suited to the cultivation of cannabis as southern France is to Côtes
du Rhône grapes. The region's inaccessibility made it suitable for
growing in greenhouses, while the climate and exposure were conducive
to agriculture. It was easy for people to nestle a few pot plants
back behind the tomatoes and bring in a little extra money to pay the
property tax bill.
Proposition 215 elevated the trade to a new level, spawning
businesses to uphold and profit from it: an aboveground-underground
market. Growers hire manual laborers to cultivate, harvest, and trim
the crops. Others are brought in to transport the bounty to
dispensaries in Los Angeles, San Francisco, and across the state, or
to out-of-state middlemen who inject the product into the black
market. Doctors write prescriptions authorizing patients to purchase
what they need from a dispensary; lawyers provide defense services;
bail bondsmen help people get out of jail. In Arcata, a tidy college
town with a population of around 17,000, there are many more shops
selling fertilizer and greenhouse supplies than there are people
growing orchids. And then there are the arteries the drug proceeds
flow through: booming truck dealerships, organic food markets, and
the electronics store.
Humboldt County has a small population base relative to its
California neighbors129,000so it's easier for the pot industry to
have a dominant effect on the local economy, Caulkins points out. At
a moment when Americans don't seem to actually make anything anymore,
domestic producers have quietly distinguished themselves in the
cultivation of high-caliber weed, demand for which has proved to be
almost recession-proof. Jobs cultivating, harvesting, and selling the
plants can't be sent overseas, and the profits are usually reinvested
in the community. Caulkins calculates that anywhere from $1.5 billion
to $2 billion worth of marijuana might be sold in California each
year. The wholesale price per pound is below $3,000, according to
locals familiar with the market.
Advantages at risk
The question that looms over the growers is whether the economic
advantages they've built up can survive a more radical legalization
policy, like that being put forth in Prop 19. "One thing that
interests me is to what degree large-scale production can lower
costs," says Erick Eschker, a professor of macroeconomics and U.S.
economic history at Humboldt State University who directs the
Humboldt Economic Index, a monthly indicator for the county. "If
economies of scale do exist, small operations are going to be at a
significant price disadvantage." Humboldt County could also lose the
geographical advantage of its remoteness, which makes it ideal for
producing an illegal product, as production moves closer to where
most of the customers are, in Los Angeles and San Francisco. With
taxation and regulation happening at a county or city level, there
could also be a race to whichever area has the friendliest rules.
The new proposition was initiated by Richard Lee, a marijuana
entrepreneur who founded Oakland's Oaksterdam University, the first
college for training students in cannabis commerce, and who helped
push the city of Oakland to start taxing marijuana dispensaries.
According to a recent poll by the Public Policy Institute of
California, voters now oppose Prop 19 by 46% to 44%, after favoring
it slightly in September. Last year, California Governor Arnold
Schwarzenegger announced that it was "time for a debate" on
legalizing marijuana (although he recently came out against
Proposition 19, calling it a "flawed initiative"). Shifting public
opinion has already led 14 states, plus Washington, to approve some
form of legalization for medical purposes.
The cause has found interesting supporters in the business world: Two
co-founders of Facebook, Sean Parker and Dustin Moskovitz, donated
$100,000 and $70,000 respectively, to backers of Prop 19 this fall,
according to campaign filings, and, in a Wall Street Journal opinion
piece, investor George Soros announced that he was backing the
initiative. The State Board of Equalization, which collects sales,
property, and other taxes such as those on tobacco and alcohol,
issued a report estimating that if marijuana were taxed at $50 per
ounce it could lead to $1.4 billion in new revenue for California,
which has been suffering from a $19 billion budget deficit. Jeffrey
Miron, a Harvard economist, estimates that if the drug were taxed at
rates similar to alcohol and tobacco it could create $8.7 billion in
national tax revenue.
Different parts of the cannabis plant contain varying levels of
tetrahydrocannabinol, or THC, the main psychoactive ingredient. The
highest concentrations are found in unfertilized buds of the female
plant, which yield the most expensive strains. Much of what is grown
in Humboldt County is of this type, and the price (followed by all
the grades below) has been dropping for the last several years. As
the price slid, more people rushed into growing, farms became larger,
and the market became glutted. It also attracted what some locals
describe as outsiders and criminal elements, including members of
drug cartels. Home invasions are more common than they used to be,
and there are reports of shootings six so far this year in Humboldt
County, up from one two years ago, according to Mike Downey, the
incoming sheriff. Many houses in Arcata have been taken over by
indoor marijuana-growing outfits. "I've been involved in the drug
wars for 25 years," says Downey. "My personal view? It's not worth
it. We've spent a lot of money and it hasn't made a difference. It's
been a frustrating issue. A lot of people have been killed. We've got
bodies in these hills we've never found."
Land rush
"I'm probably selling more land than anyone else in the country,"
Charlie Tripodi says as he bumps along the highway in his mud-crusted
Dodge Ram. Tripodi says he's sold $21 million worth since January, to
be precise. "We missed a bit of the bullet of the real estate market.
No real estate agents are out peddling hot dogs." And why might that
be? "The marijuana industry," Tripodi says without hesitating.
"That's obvious. It definitely kept us afloat."
Tripodi, a Realtor with Coldwell Banker who calls himself "The Land
Man," specializes in selling remote parcels of former timberland to
buyers who want to farm or live the so-called rural-residential
lifestyle. A former white-water rafting guide, he has chin-length
brown hair and a boyish cowlick. He spends his days cruising around
in his truck with laminated aerial maps on the front seat and a
fortified laptop on the console. Tripodi says that land prices in
Humboldt have gone nowhere but up. "In the last eight years, the
price for 40 acres has gone from $59,000 to $150,000," he says.
A good portion of the demand comes from people trying to diversify
their assets. Over clam chowder at the Waterfront Cafe Oyster Bar in
Eureka, Calif., the sister city to Arcata, which has a brand new
waterfront and the lively air of a rich little boomtown, Tripodi
slips into his sales pitch: "We're facing a devaluation of the
currency," he says. "If there's another terrorist attack, people are
going to be fleeing here. It's a safe haven.…Where are you going to
put your money? Land has much more of an intrinsic value."
Of course, the demand has as much to do with high times as end times.
"I hate to emphasize that," he says, but "hopefully most of them grow
under the guidelines of 215; some of them do, some of them don't. I
don't ask questions, it's none of my business." During the last few
years, he's seen much more of this second type of buyer passing
through town. "It's the end of the gold rush. People will be
clamoring to be a part of it until the last nugget is taken out of the river."
Uncertainty for small business
On a quiet side street, just beyond Arcata's main square, sits a tidy
white building that could pass for an insurance office. The Humboldt
Patient Resource Center is a dispensary where people with 215 cards
can sidle up to the counter and order one of the pot strains
Redwood Kush, and so on that are on view in little clear plastic
jars. If the clients don't feel like smoking, as many patients don't,
according to Mariellen Jurkovich, the proprietress, they can buy one
of the goodies in the display case: ganja pecan pie, "special" peanut
butter truffle cups, and rainbow Rice Krispie treats "Consume
slowly!" the package warns. Chelsea, the perky blonde nutritionist,
sits at a table by the door, offering paper cups of sunflower seeds
and tamari roasted almonds.
Jurkovich has been here 11 years and is just the sort of small
business owner who could see her world changed by the passage of the
new bill, but she doesn't know if it would be for better or worse.
"When you run a business, you need to know the rules. Here the rules
are constantly changing," she says, sounding like a beleaguered
member of the Chamber of Commerce.
Jason isn't sure how the shifting legal landscape will affect his own
small enterprise, but he tries to be optimistic. As he finishes his
carrot-and-cannabis cocktail and moves on to beer, he breaks down his
business: He spends around $50,000 a year on labor, he estimates, and
thousands more on "bourgie" organic nutrients that he orders from
Chile and other far-flung locales to make his plants more high-end.
"I just put an 18-wheeler's worth of soil in the ground," he adds,
which amounted to about $12,000. There's a lot of spray and
fertilizer. "The plants are pretty water-hungry," he explains.
Harvest party
At harvest time, which starts in October, he hires trimmers to cut
the buds off plants for $200 a pound. "Somehow I tapped into this
endless lesbian crew. They come out from North Carolina or Idaho,
jumping trains the whole way," he says. "One year I had a CPA from
Paris." He hires a cook to feed them and provides music, wine, and,
of course, plenty to smoke. "It's a party," he says, bouncing up and
down and making Edward Scissorhands motions with his fingers. His
plots are scattered around the forest along with a collection of
greenhouses that are visible from overhead but, he hopes, aren't
numerous enough to invite a raid.
Jason says he clears $150,000 to $200,000 a year in profit from the
land surrounding his house, depending on how good the crop is. He
earns more from other plots he owns nearby. He doesn't pay taxes on
the income because he doesn't file a return ("I don't lie about it.
That's when you get in trouble"). Spending all that cash in the
middle of nowhere can be a challenge. He and his wife eat
all-organic, and he's got a few trucks to play with as well as a
$28,000 Kubota backhoe. Some of the money is "seasoned" slowly into a
bank account, so as not to draw attention.
Inside one of Jason's greenhouses, eight 10-foot-tall plants salute
the sky, like big, smelly Christmas trees. Each is encased by a metal
hoop of the sort used to grow tomatoes, and hoses snake along the
floor to provide water and nutrients. He says the big strains this
year are called "Chemdog" and "Green Crack." Jason is also working on
his own concoction, called "Triple X." "Here, squeeze this," he says,
indicating one of the spongy buds, about the size of a golf ball. It
leaves a sticky, pungent residue. "Ha! You can't go back to New York
with that!" he smirks.
The conditions surrounding Jason's industry may be about to change
dramatically, but he's determined not to worry about it until it
actually happens. For now, life is almost too easy. Occasionally he
even feels nostalgic for the bad old days, when the feds were focused
on crushing the domestic pot trade, before they decided to spend most
of their energy on crystal meth instead. Back then, the choppers were
always roaring overhead. Sometimes he had to dive into the mud with a
rifle. "It used to be sexy," Jason says, half joking. "Now it's just boring."
.
--
You received this message because you are subscribed to the Google Groups
"Sixties-L" group.
To post to this group, send email to [email protected].
To unsubscribe from this group, send email to
[email protected].
For more options, visit this group at
http://groups.google.com/group/sixties-l?hl=en.
